U.S. Forex Market Commentary Thu, Sep 17 2009,

STERLING

The euro extended recent gains vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4765 level and was supported around the $1.4685 level. Data released in the U.S. today saw August housing starts improve to 598,000 from a revised July print of 589,000 while August building permits improved to 579,000 from a revised July print of 564,000. Also, weekly initial jobless claims fell to +545,000 from a revised +557,000 while continue jobless claims were higher than expected at 6.230 million. Moreover, the September Philadelphia Fed survey printed at 14.1, an improvement from the August reading of 4.2. All eyes will be on next week’s Group of Twenty meeting in Pittsburgh to see if policymakers make any progress on some countries’ initiative to replace the U.S. dollar as the main international reserve currency. In eurozone news, German finance minister Steinbrueck warned against “too much euphoria” with regard to economic expectations. Steinbrueck also said there are no current initiatives to withdraw fiscal stimuli. On a pessimistic note, he added “We have no credit crunch in Germany on a macroeconomic level, but on a microeconomic level we have it, and it could intensify.” Concerning the Merkel government’s plan to cut taxes after the 27 September general election, he noted those plans are “unreal.” Data released in the eurozone today saw July construction output fall 2% m/m and 10.8% y/y. Also, the EMU-16 July trade surplus improved to €6.8 billion. Euro bids are cited around the US$ 1.3900 figure.

JPY / CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥91.60 level and was supported around the ¥90.50 level. As expected, Bank of Japan upgraded its assessment of the Japanese economy and noted the economy is “showing signs of recovery.” The central bank kept the unsecured overnight call rate unchanged at 0.1% and maintained their emergency lending programs for financial institutions and companies. The “showing signs of recovery statement” represented an upgrade from last month’s “stopped worsening” statement. BoJ Governor Shirakawa reported that while fiscal stimulus measures have been helpful, policymakers “are not confident about the strength of private final demand after those effects fade.” Shirakawa also noted BoJ officials are monitoring the yen’s recent appreciation. Similarly, BoJ Deputy Governor Yamaguchi noted “High downside risks to the economy are continuing, reflecting such things as the international finance and economic situation, and medium- to long-term growth expectations of companies.” Data released in Japan today saw the July tertiary index improve while the Ministry of Finance’s large company business sentiment survey revealed Japanese manufacturers turned optimistic about the economy for the first time in nearly two years. Yesterday, incoming finance minister Fujii talked about recent movements in exchange rates, reporting they “are not fluctuating rapidly now.” There is definitely less concern in the market now over actual intervention than there was when the Liberal Democratic Party was in charge. Fujii also said it is important to respect the central bank’s independence and said the central bank should not finance spending. The Nikkei 225 stock index climbed 1.08% to close at ¥10,443.80. U.S. dollar offers are cited around the ¥94.75 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥134.75 level and was supported around the ¥133.40 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥149.55 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥88.75 level. In Chinese news, the U.S. dollar gained ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8200 in the over-the-counter market, up from CNY 6.8187. Yesterday’s U.S. TICS investment flows data revealed China was a net buyer of U.S. government assets last month.